Singapore Telecommunications Ltd – Help from Bharti and A$ May 31, 2021 602

PSR Recommendation: NEUTRAL Status: Maintained
Target Price: 2.320
  • FY21 revenue met but EBITDA was below, at 91% of our FY21 estimate. Excluding exceptionals, PATMI declined 22% in 2H21.
  • Bharti’s (BHARTI IN, Not Rated) turnaround and a 9% appreciation of A$ in 2H21 boosted Final DPS was slashed by 56% to 2.4 cents. 
  • Exceptional losses of S$1.1bn in 2H21 included impairment of S$589mn for Amobee and S$336mn for Trustwave. Hat trick of write-offs plus Hooq totalled S$1.18bn in the past two years.
  • Singtel announced a new strategic direction with an emphasis on 5G consumer and enterprise in Singapore and Australia, NCS as a new engine of growth and value-unlocking of infrastructure assets. No surprises. We are wary of value-unlocking as it is unclear whether it will involve disposals or mere refinancing.
  • We reduce FY22e EBITDA by 13% to factor in weaker Singapore mobile and Australia broadband earnings. Maintain NEUTRAL with SOTP TP lowered to S$2.32 from S$2.44, incorporating lower associate valuations. Outlook is sluggish with minimal growth in core operations and indifferent dividend yields of 3.7%.

 

 

 

The Positives

+ Stable Optus mobile revenue. Mobile revenue was unchanged at A$2.74bn. Blended ARPU managed to rise 6% YoY to A$31. This offset a 4.5% YoY decline in subscribers to 9.97mn. Prepaid ARPU suffered the most with a 12% decline due to fewer inbound travellers and foreign students.

 

+ Bharti remained the bright spot. Operating profits for Bharti in India and Africa surged 74% YoY in 2H21 to S$541mn. Revenue expanded from higher ARPUs and subscribers. However, underlying profit contributions were negated by high finance costs of S$420mn. Singtel’s 31.7% stake in Bharti Airtel is worth S$16.6bn, marked to market.

 

The Negatives

– Hat trick* cost of S$1.2bn. On 14 May, Singtel announced impairment charges for intangible assets and goodwill for Amobee (S$589mn) and Trustwave (S$336mn). Adding in a S$195mn impairment for Amobee last year and liquidation of Hooq (S$68mn), its acquisition-cum-digital adventure cost at least S$1.18bn over two years, excluding operating losses. Management mentioned that without partners, it is unable to scale up faster.

– Final dividend slashed. Final DPS was cut 56% YoY to 2.4 cents (2H20: 5.45cents). Full-year DPS was 7.5 cents or S$1.23bn, down 39% from the 12.25 cents or S$2.0bn in FY20. This  represents a 71% payout of underlying net profits. Guided payout for FY22e is 60-80% (Figure 1). Associate dividends (net of withholding tax) in FY21 were S$1.29bn (FY20: S$1.29mn).

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About the author

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Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

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